US Treasuries got a lift on Tuesday after a widely anticipated report on Chicago-area business conditions came in weaker across the board, helping to ease concerns that inflationary pressures were building. Traders said the report brought data from the highly industrialised area in and around Chicago more in line with manufacturing surveys from other regions, which have shown growth slowing.
Another report on consumer confidence came in higher, but the market shrugged off the data because they reflected improvements already shown in other consumer surveys.
"The bond market is reacting a little bit to the Chicago purchasing manager index headlines, to month-end buying and to the stronger dollar. We've seen a little bit of buying on the very long end of the curve on the data," said Gemma Wright, director and market strategist for the Americas at Barclays Capital Group.
The 10-year note US, building on early gains, was up 16/32, yielding 4.012 percent, and again closing in on the 4.00 percent barrier that created such a stir in the market last week. The two-year note US was up nearly 3/32 and yielding 3.60 percent.
Prices of five-year notes US also rose a bit more after the data. They were 8/32 higher, while yields were at 3.75 percent, compared with 3.82 percent on Friday. Meanwhile, the 30-year long bond US was up more than a point in price and yielding 4.36 percent, compared with 4.43 percent on Friday.
The National Association of Purchasing Management-Chicago said business activity in the area in and around Chicago expanded for the 25th straight month, but at a much slower rate than expected.
The May index came in at 54.1 - still above the threshold at 50 that separates growth from contraction, but below both expectations of a 62.0 May reading and April's 65.6 number.
Some analysts took particular interest in a drop in the prices paid index of the Chicago PMI report, which came in at 54.3, down sharply from April's 66.1.
"The most interesting element was the fall in the prices paid index, which probably reflected the peaking of energy prices and a strong dollar, said Alan Ruskin, research director at 4CAST Ltd in New York. "It will assuage some fears that inflation pressures are picking up," Ruskin said.
Traders said the consumer confidence report from the Conference Board, a New York business information group, in part reflected moderation in gasoline prices.
"Consumers are recognising some of the good data like gasoline prices falling. Confidence has been very sensitive to gasoline prices," said Christopher Low, chief economist at FTN Financial in New York.
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